Does Exchange Rate Volatility Matter for Stock Returns in Indonesia?

Yahya Yahya, Gunawan Gunawan


Recently, the Indonesian Rupiah (IDR) has been becoming more volatile and affecting the national economy, including the stock market. Amid the high volatility of the IDR, this study intends to empirically assess the impacts of the IDR on the stock market of Indonesia over the period 1995 to 2018. The data of the IDR cross rate over the USD, interest rate, and the Jakarta stock indices sourced from the International Monetary Funds (IMF) were estimated using multiple regression analysis and Granger causality techniques. The study recorded that both the IDR and interest rate influenced negatively and significantly the stock market of Indonesia, showing that the IDR depreciation and interest rate reduction have caused the values of stocks to increase. Thus, to obtain higher returns from investing in the stocks, investors need to take into consideration the volatilities in the IDR and changes in the interest rate in their investment assessment.

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